There are many factors that stock market bears might use to support their position that equities will fall as 2023 draws to a close, including worries about another Fed rate hike and the impending consumer slump.
But thanks to a jazz great, Savita Subramanian, head of US equities & quantitative strategy at Bank of America, has a straightforward message for investors: “Don’t worry, be happy,” she said in a recent note to clients on Wednesday.
In the note, Bank of America raised its S&P 500 year-end target from 4,300 to 4,600. That would represent an increase of around 3% above the S&P 500’s current levels.
The mainstream economist claims that the recession has been avoided, but new bearish stories about stocks have surfaced,” Subramanian stated. “The net message of our five target indicators is bullish, yielding a new year-end target for 2023 of 4600, up from 4300.”
The economics department at Bank of America Research no longer forecasts a recession for the US economy, which led Subramanian to assert that markets are now in the “recovery phase.” The equities strategy team thinks the second quarter’s profit losses were the bottom, which might signal a boost for stocks as corporate profits frequently influence market performance.
In Subramanian’s letter, it is said that BofA’s “highest conviction call” is that the equal-weighted S&P 500, which does not take into account the size of the companies in the index, will outperform the conventional S&P 500 index. According to BofA, the weighted average index has performed better than the standard index during the last nine recovery cycles. Additionally, Subramanian’s team thinks that midcap companies will be less affected by any deglobalization risks than megacap tech firms, such as China cutting back on its Apple consumption.
Five corporations make up 25% of the S&P 500 index, according to Subramanian, making it “more top heavy than ever.”
She contends that this indicates there is opportunity in the other businesses that haven’t been overtaken by the development in artificial intelligence.
According to Subramanian, “Old economy, inefficient [businesses] (more common in the equal weighted S&P 500) could benefit as much as Tech and growth, but have not priced this theme in as richly.
One of the top year-end S&P 500 calls among Wall Street strategists tracked by Yahoo Finance is Bank of America’s 4,600 call. The study by BofA indicates it is a positive development.
The average S&P 500 year-end objective at the end of August typically forecasts 5% gains through the end of the year, according to data collected by BofA since 1999. The S&P 500 performs better than usual in the rare years when strategists predict the benchmark index would decline from its August finish.
The S&P 500 has consistently increased and boasts higher average returns than times when strategists had expected gains for the index over the final four months of the year.
Therefore, if the consensus prediction for a 2% decline in the S&P 500 until the end of 2023 is any guide, stocks may still have opportunity to rise.